As Gas Prices Climb, NJ Lawmakers Eye Price Controls

STATE – As fuel prices skyrocket, state legislators are taking a new look at an old law which regulates the price that retailers can charge for gasoline.

National average gas prices climbed to over $4 a gallon Monday, up nearly $1 from a year ago. New Jersey consumers are still paying less than the national average, but the $3.94 average price reported on Monday is the highest on record and is nearly 40 cents higher than it was just last month.

New Jersey is one of 19 states that bar retailers from selling gas for less than what they paid for it from suppliers. The 1938 law was adopted to prevent gas companies from undercutting competitors to try to gain a monopoly on fuel sales.

Noting that service stations with convenience stores or repair shops make most of their money from those services, Assemblyman John Burzichelli (D-Gloucester) said, “It is time for state gas pricing laws to catch up to speed with the times. Gasoline is one of the only products for which a state can actually tell a merchant their price is too low and force them to hike-up costs on the consumer.”

Burzichelli, who sponsored a bill to remove the price control, believes that some service stations might choose to sell gasoline below their cost to attract customers for their other services.

While the move to remove price controls could bring short-term relief to consumers, it may also lead to higher prices in the long term. Some fear that removing the prohibition against selling gasoline below cost would allow oil companies to drive smaller competitors out of business. At one time, New Jersey had 8,000 retail gasoline outlets. Today, there are about 2,600.

A 2005 study in the Journal of Economics conducted a comprehensive analysis of selling below-cost (SBC) laws, which are in effect in 19 states. Its conclusion: “Perhaps surprisingly, we find consistent evidence that these laws actually lower average gasoline prices, in part by increasing the number of gasoline outlets. Although critics contend that SBC laws protect inefficient and high-cost producers, our results indicate that gasoline prices are actually lower in the presence of these laws, not higher.”

State lawmakers are also considering legislation that would require gas stations to clearly indicate both cash and credit prices for any fuels they sell. The bill, sponsored by senators Shirley Turner (D-Mercer) and Paul Sarlo (D-Bergen) was approved Monday by the Senate Transportation Committee.